spot a fake a mile off. The plasticky “Prado” wallets arranged on bedsheets on the pavements lining Canal Street in New York bore only a passing resemblance to the ones for sale in the Prada store in Soho. The fake Chanel bags they lay next to were lumpy, misshapen and smelled a little like petrol. An attempt to make a quick buck by buying one and passing it off as genuine—perhaps by taking it to a small local consignment store—would have been met with raised eyebrows and a chuckle.
such dupes are often spot on—down to having the correct number of stitches on each side of the classic Chanel quilted diamond . They cost about a tenth of the regular price. In Mr Akerlof’s model there are just four kinds of car: new cars and used cars; good cars and bad cars. New cars are worth more than used ones and good ones should be worth more than bad ones. Mr Akerlof assumes that a car’s owner will learn over time if it is a lemon. But this will not be obvious to a potential buyer. They will therefore offer the same price whether a car is good or bad, and the price will take into account the possibility that the car might be a lemon.
To help overcome situations like this, it helps to have independent third parties who are able to adjudicate quality. It is often easier to sell a used car to a mechanic or a dealer, for instance, who will then be able to provide a guarantee to a less knowledgeable buyer. Many luxury brands provide authenticity cards with bags when they are sold, so that customers can prove their purchase is real.